Property Valuation (alternative)
In Maryland, the income capitalization approach values property by:
AAdding land value to depreciated improvement costs
BComparing recent sales of similar properties
CDividing net operating income by the capitalization rate✓ Correct
DMultiplying gross rents by 100
Explanation
The income capitalization approach: Value = NOI ÷ Capitalization rate. This approach is primarily used for income-producing properties.
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Key Terms to Know
Net Operating Income (NOI)
The annual income generated by an income-producing property after subtracting operating expenses, but before debt service.
Capitalization Rate (Cap Rate)A rate used to estimate the value of income-producing property, calculated as Net Operating Income divided by property value.
Gross Rent Multiplier (GRM)A quick valuation metric for income properties calculated by dividing the property price by gross annual rental income.
Comparable Sales (Comps)Recently sold properties similar in size, condition, and location used by appraisers and agents to estimate a property's market value.
Math Concepts
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